When a divorce occurs, everyone starts thinking about how their assets will be handled. A QDRO (qualified domestic relations order) is a court order that gives one spouse a portion of the other spouse's employer-sponsored retirement and benefits account. QDROs are not issued in every divorce, you may want to consult your lawyer about whether you or your spouse qualify for a QDRO. In this video, attorney Abigale Stolfe answers questions about divorce, retirement accounts, and Qualified Domestic Relations Orders in New Jersey.
Watch: New Jersey Divorce Attorney, Abigale Stolfe, answers frequently asked questions about QDROs in a New Jersey divorce
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Today, we're going to take a moment to speak about qualified domestic relations orders. A qualified domestic relations order is commonly referred to as a QDRO. So, if you are in the midst of your divorce process, you can look up the term QDRO, and gather more information concerning a QDRO. We use a QDRO in order to divide certain types of retirement accounts. Not all retirement accounts require a QDRO, but certain accounts cannot be divided without a QDRO.
So, it is important to know during your process, whether or not the account that you're looking to divide, whether it be your account or the account of your spouse, does in fact require a QDRO. The reason you want to know this during the process is because certain information has to be gathered and given to the QDRO preparer, in order to effectuate the final division of the account. We're going to go into more specifics about that, but that's a general overview of why it is you want to have some more information about these QDROs while you're in the process.
So, let's start with what is a QDRO?
As I said, a QDRO stands for qualified domestic relations order. These are orders that are separate and apart from your settlement agreement, which you might call a matrimonial settlement agreement or a property settlement agreement, and separate and apart from the judgment of divorce, the actual document the judge signs in order to decree the marriage over. This QDRO is an entity in and of itself. It cannot be in the MSA or PSA. It cannot be in the judgment of divorce. And while your settlement agreement, MSA or PSA may reference the QDRO, it is not in and of itself a QDRO. So, if you think that you do not need one, I would highly recommend speaking with your attorney or an attorney in order to show them the documents you have to see if in fact, you are correct that you do not need a QDRO.
So, when you're looking at whether or not a QDRO is going to be required in your case, there are certain key components. Number one, were you married? If you were not married or the subject of a civil union, then it is unlikely you will be allowed to divide a retirement account pursuant to a QDRO. So, if you have a long-term relationship or palimony could be an issue, asset sharing could be an issue, custody, child support could all be issues, the division of a retirement account, pursuant to a QDRO is unlikely to be an issue. Again, it's something to check in your specific case.
Within the terms of a QDRO, the document states to the plan administrator, hey, plan, this is what you have to do to give each party their share. Without the QDRO, the plan administrator cannot divide the account. So, let's use really simple examples. Okay? I like to use really simple examples in all of my videos. Let's say that your spouse worked for the State of New Jersey, whether it was as a teacher, a police officer, a corrections officer, in any capacity where they are entitled to a state pension. In order for the State of New Jersey to give the non-titled spouse, meaning the person who didn't work for the state, their share of that account, they must have a QDRO. There's no other way for them to give the non-titled spouse the share of the account. So, when you're talking about why do we use it and who needs it, why we use is to divide these accounts, and who needs it is both the titled and non-titled spouse.
Now, as the titled spouse, you may say, well, why do I need it? It's going to divide my account. And I never really wanted to give my account over anyway. The reason you need it is because once the plan administrator, again, back to my example, the state finds out that your account was subject to distribution.\, You could lose all right and ability to have any control over the use of your account, whether it’s used in investing, while you're still working, whether it's a declaration for retirement and whether it's collection. So as the titled spouse, it is just as important, and I tell my clients even more important that you finish the QDRO. You want to have control over your account. You want to have control over the investment of your account. And you want to have control over the timing of your retirement without there being a stall, because the QDRO was never completed. And the farther away you get from the divorce, I promise you the more complicated these QDROs become.
(So let's get to the questions that were sent in before. And as you know, I normally do this as a Facebook Live. Today, we could not do a Facebook Live because of this torrential storm that's happening. So, my internet is actually knocked out. I nonetheless wanted to put together a video that could be uploaded for everyone's review. And because we did advertise a QDRO discussion, I wanted to make sure that we had that. So, I do have some questions that were sent to us when we advertised the QDRO discussion, so I'm going to focus on those. If you do need to talk to me, my name is Abigale Stolfe. My number is 732-240-9555. You can give me a call and we can have a private conversation about any of your particular QDRO questions, but right now we'll focus on these questions that I have.)
So, we just talked about what is a QDRO, which was the first question. Why do I need a QDRO?
Like I just said, in order for the financial institution or the plan administrator to divide these retirement accounts, in many cases, they require the QDRO to be complete. You want the QDRO so that the terms of your settlement agreement can be implemented. The timing of the QDRO, which could be a later question, I don't know, let me know, but the timing of the QDRO is not critical in that if you don't do it instantly, you don't waive your right. You can still have the QDRO completed years later.
However, the timing of the QDRO years later creates for many complications. The preparation and completion of a QDRO requires a lot of document sharing. And as you get away from the date of distribution, the timing, the day when we're going to say, this is the day this thing is valued at, as you get farther away from that, the more difficult it will be to gather all those documents. So, it is really important that you take a moment to put together this QDRO package, have a conversation with your lawyer about the timing of the QDRO, and getting the documents necessary in order to prepare the QDRO.
Who is responsible for preparing a QDRO?
A QDRO can be drafted by the lawyers involved in the case, or in most instances by a third-party company that is hired by the lawyers or the litigants to prepare the QDRO for them. The reason that you sometimes hire a third party to prepare these is because they work with these plans so frequently that they have direct contacts. It's a more efficient process than having your own attorney who may not have worked with this particular fidelity person in the past. It's just more efficient. So, when I'm involved in the case, I will oftentimes before the case is even near conclusion contact the third-party QDRO preparer, explain the type of plan we have, explain who is the titled spouse, who is the non-titled spouse, and project what I anticipate to be the distribution date for the purposes of the final resolution.
Now that's the trick, right? Because it could be that you use a different date than what you thought you were going to use, but that's not the hard part, right? The date is not the hard part. The hard part is the gathering of the documents. So, when I call the third-party preparer and I say, "Hi, this is what I have. I have an employee who is a State of New Jersey pension holder. The spouse is entitled to 50% of the marital portion. And I need to know, please, what documents you would like in order to prepare that order." They will then send me a list of documents they need. How does that help you? Helps you tremendously, because now I can ask your spouse for those documents, and I don't have to settle your case until we have those documents.
It is so important and so cost-effective to do this in the beginning than to wait until the end, because once you're divorced, you lose the opportunity to engage in discovery, which means send subpoenas. While you're in the process, you can send a subpoena. So, if you have a spouse, who's just not going to participate, they're not going to help, they're not going to engage, they're not going to give you anything that you need in order to finalize the marital assets, by knowing that in the divorce process, you can send a subpoena and then you could just get the information straight from the State of New Jersey. You don't need your spouse to do that. It is a significant cost-saver to prepare the document package for the third-party QDRO preparer during your divorce litigation.
So next question, do all retirement accounts require a QDRO?
No, all retirement accounts do not require a QDRO. Well, let me take a step back. Retirement accounts fall into two umbrellas. One is a defined benefit plan, and one is a defined contribution plan. So, let's tell you what those two things mean. A defined benefit plan is a plan that you will commonly know as a pension. It is a plan that you do not have a dollar value attributed to until you retire, at which time you have a monthly dollar value attributed to the plan and you're paid on a monthly basis. It's a stipend, it's a pension, it's any of those words that would mean we don't have a big dollar amount, but we have a monthly payment, like a pension. A defined contribution plan is a plan that the employee, as well as the employer, contribute towards. It generally grows over time. It's an investment account. And you know, at any given moment how much that plan is worth on that day.
So, take the simple examples. If I say to you with your New Jersey pension, how much is your pension worth? You're going to say to me, I have no idea. I don't know. I can't have you call an employer and get a number because that does not exist for a pension. I can, however, say to you, how much is your 401(k) worth? That you will know. You'll be able to say, oh, Abby, it's worth X. We have a defined number. Okay? That's your difference. Plans that generally fall in the defined contribution category, 401(k), 403(b), a 457, a Thrift Savings Plan, which is a federal plan, a profit-sharing, money purchase, employee stock options, tax-sheltered annuities, any of those types of retirement accounts where you have a defined number, but if you were to draw upon that account now, there would definitely be attacks. And there could be a penalty, depending on the reason for the drawing of the plan.
Most of the defined benefit plans, the 401(k)s, 457, Thrift, et cetera, do not require a QDRO. However, some do require the QDRO and they will not divide the account without the QDRO. So, it's important, again, during the discovery process of your divorce proceedings to find out from the actual plan, do I need a QDRO? That's step number one. And if you do not need a QDRO, what do I need? Because some plans will tell you, you don't need a QDRO, but we have this 10-page form that you have to complete with unbelievable specificity. And therefore, if you do it wrong or you don't gather the right information, you're in that delayed process yet again. So, you want to make sure with these retirement accounts that you are doing proper investigation, right from the word go and not delaying that investigation. Certain types of accounts you cannot use a QDRO for, IRAs, deferred annuity plans, any plan that's not qualified, basically. And it would, again, be a simple matter of investigating the particular plan to which the marriage has an entitlement.
Is a QDRO always required as part of a settlement?
No. A settlement can be whatever you want the settlement to be. If you want to waive someone's retirement account in exchange for something, have at it. Then you don't need a QDRO. If you want to roll the entire account, not a pension, but a different type of account, a defined account to your other spouse, you might be able to do that during the divorce proceeding. There's a variety of different ways to share in assets. And it does not always mean that you have to do a division of each and every asset. A settlement agreement really leaves the terms of how you divide your marital assets to you. Good, bad, or ugly, but they're yours.
Is there a difference between QDROs with a 401(k) versus pension?
Every QDRO is going to be written specific to the plan administrator demands, which is based upon the plan description. So, every retirement account has a plan description, which is a document that created the plan, and it sets out the terms of the plan. The QDRO has to address the plan description and every piece that that description calls for in the division or allocation of the plan. This is again why we hire a third-party company. To go through the plan description of every different plan to which every client could have an entitlement would be very, very costly. To send it off to a third party who deals with so many of these plans on a regular basis, you're getting the institutional knowledge inherent in that group.
So again, this is just another reason why, yes, there are differences in every QDRO. Whether it be a 401(k), a pension, a 457, a 403, you name it, there's a difference in every single QDRO. There's no two that are exactly alike. Notwithstanding that, a lot of those plan descriptions are very similar and therefore do require a lot of the same information.
How long does it take for a QDRO to be prepared?
That's kind of a loaded question. So, the answer is to prepare the QDRO doesn't take long. To gather the information takes a long time. To get the plan to sign off on the draft QDRO, that could take a long time too. To get a judge to sign off on the QDRO, which is the final step, that's what you need, that usually doesn't take too long. The delay in the process is always the gathering of the documents necessary for the preparation of the QDRO. The gathering of the plan description, the gathering of all the account statements, the gathering of all the loan information, if there's a loan, all these different factors take a long time to gather.
I will stress it. I will keep stressing it. And I will always say it again. It is more cost-effective to do this legwork during the process than it will ever be to complete that legwork after the divorce. After the divorce, you are not entitled to discovery, which means if your spouse is refusing to give it to you, the only way to gather the information is by taking your spouse to court in a motion and asking the court to order them, to give you the information, which is just more of a delay, right? If you, do it during the divorce process, you have the benefit of subpoena power, and you can gather the information. It will still cost money. It will still take time, but you have a self-help option that you do not have after your divorce is complete.
Please give us a call. These are very tricky things to complete. These are very important documents to finalize, 732-240-9555. I'm Abigale Stolfe from Stolfe Zeigler New Jersey Divorce Group. Thank you for joining me today.